New Delhi: The upcoming 2G spectrum auctions could well be a short affair, with the final bid price not too different from the reserve price in both the 1,800 and 800 Mhz spectrum bands.
There would be few circles, if any, where some competition would be seen and these may be circles where operators such as Telenor, Idea and Videocon compete. But from the very beginning of the auction process, some circles will have more spectrum available than there are bidders.
Hitesh Shah and Abhishek Gupta of IDFC Institutional Securities have said in a note to clients that “the application for bids in select circles ratifies our view that the 2G auctions could be a short affair (after a muted response from new operators) with the final winning price of spectrum not too different from the reserve price. We believe there would be a few circles with excess supply from the beginning.
However, circles in which Telenor, Idea and Videocon are interested could see some competition. AFP
However, circles in which Telenor, Idea and Videocon are interested could see some competition (West Bengal, Bihar, etc).
Assuming no overlaps, only 37 new applications have been filed (17 Videocon, 7 Idea and 13 Telenor) for a total of 44 available slots of 1,800 Mhz spectrum pan-India (two new operators could be accommodated in each of the 22 circles).”
Shah and Gupta appear to be on the right track since their views are also echoed by Sachin Salgaonkar and Paras Mehta of Goldman Sachs.
In a report this morning, the two Goldman analysts have said: “Unlike the 3G auctions conducted in 2010, where demand was higher than supply (7-8 telcos bidding for three slots), we believe that in the upcoming 2G auction supply will be higher than demand, raising risks of an unsuccessful auction in certain circles. We, therefore, also expect the winning price in most of the circles to be the same as the reserve price.”
As per information released by the Department of Telecom (DoT), Bharti Airtel, Vodafone, Idea Cellular, Telenor and Videocon have said they would be interested in applying for 5, 17, 7, 13 and 17 circles in the 1,800 Mhz band respectively. Reliance Industries, Reliance Communications and Sistema Shyam have decided not to participate in these auctions.
The two IDFC analysts quoted earlier have noted that the participation of incumbents like Bharti and Vodafone would be crucial to make the auction successful (demand at least equal to supply). Also, the absence of Sistema in the auction could mean some consolidation in the sector is in the offing. Already, several news reports have indicated that Sistema is in talks to acquire Aircel’s operations. Also, unconfirmed reports suggest that Reliance Industries could fund Videocon for 2G bids.
A story in The Hindu Business Line this morning also speaks of paucity of interest in the upcoming auctions. It notes that there are only two bidders for CDMA spectrum, Videocon and Tata Teleservices, with the latter applying only in three circles. Videocon has applied for CDMA spectrum in 10 circles.
The story says these two bidders are unlikely to compete for the same circles, in which case the bidding won’t go beyond the base price. And though there are five bidders for GSM spectrum, here too, there is unlikely to be any aggressive bidding.
The story goes on to say that if the two bidders for CDMA spectrum win the auction at base price, the total payout will be Rs 6,500 crore. GSM spectrum at base price will bring another Rs 15,000 crore. And the one-time spectrum fee (which the government plans to charge incumbent operators who hold spectrum beyond 4.4/2.5 Mhz in GSM and CDMA bands respectively) will generate another Rs 20,000 crore.
This is on the assumption that BSNL and MTNL will be given a waiver in paying this one-time charge in some form. But if all goes according to this plan, the government could generate Rs 41,000 crore, in line with its initial target.
“The problem arises if the operators choose to pay the money in instalments. In such a scenario, the Government would get only 30 percent of it this year, which is only Rs 12,000 crore,” the story notes
